Archive for ND&S Updates
Rate Hike Likely at Next Fed Meeting
September 17, 2018
Global equity markets were positive across the board last week. In the U.S., the S&P 500, DJIA and NASDAQ were up 1.2%, .9% and 1.4%, respectively. International markets also advanced with the MSCI EAFE up 1.8% and even emerging markets, which have been under pressure, rose 0.6%. Growth stocks continued to outperform value stocks. The leading sectors for the week were telecom and energy, while the worst performing sector was financials. Fixed income markets declined as yields increased across the whole length of the yield curve. The rate on the 10-year U.S. Treasury note rose from 2.94% to 2.99% during the week.
In economic news last week, the pace of inflation slowed slightly from the prior month as August headline CPI was up 2.7% y/y versus 2.9% y/y in July. Core inflation remained the same at 2.2% y/y. The Fed’s preferred measure of inflation, PCE, rose 2.3%. With a tight labor market and a strong U.S. economy, this should be enough to support another 0.25% short-term rate increase by the FOMC at their meeting next week.
In the week ahead, there will be reports on housing and the release of the Flash PMI Composite. Additionally, high-level talks are expected to resume this week between the US and China ahead of an additional round of tariffs on $200 billion of Chinese imports.
“Your positive action combined with positive thinking results in success.” – Shiv Khera
ND&S Weekly 9.10.18 – Tariff Envy
September 10, 2018
The equity markets last week were weighed down by trade tensions and Washington shenanigans during the Labor Day shortened week.
US economic reports were impressive with the ISM manufacturing index increasing to a 14yr high. The big story for the week was a robust jobs report that showed nonfarm payrolls and wages increased more-than-expected while the unemployment rate remained at 3.9%, close to an 18yr low. Total Wages, which factors in average hourly wages as well as total hours worked, are up a robust 5.1% in the past year.
Despite the good economic news, investors were concerned about comments from the White House economic advisor, Larry Kudlow, who said that President Trump would be making a decision regarding another round of tariffs. This one threatens to impose $267bn of new tariffs on Chinese goods. As a result, the S&P 500 declined 1% and the tech-heavy NASDAQ was down 2.5% for the week. Foreign markets continued their slide with developed international declining 2.8% and emerging markets over 3%.
After a fabulous 2017, emerging markets entered bear-market territory. The recovery from the financial crisis has been slow, as the MSCI Emerging Markets ETF (EEM) has not yet eclipsed its closing high of $55.73 it set all the way back on 10/31/07 (not including dividends). Emerging market investments have been stuck in a tug of war between solid fundamentals/corporate earnings growth and sentiment that has recently turned negative. Emerging market equities have been undermined by the combination of rising trade tensions, a strengthening US dollar and rising US Treasury yields which has exposed structural weakness in several EM economies and punished their currencies.
The Price of WTI crude oil declined nearly 4% last week to close at 67.76/bbl. Domestic oil production continued to hit record levels while concerns arose over global demand due to escalating trade issues between China and the US.
Treasury yields moved higher last week as last week’s job report seemed to indicate a higher likelihood of two additional rate hikes from the Fed in 2018. The 10yr Treasury closed at a yield of 2.94%, up from 2.86% the week before.
There will be a flood of inflation reports this week: the Producer Price Index (PPI), Consumer Price Index (CPI) and the Import Price Index. The consumer pulse will also be tested with economic releases on retail sales and consumer confidence.
With the political jostling, trade tensions, potential for slower economic growth, we strongly recommend a balance between a risk-on and risk-off outlook. Maintaining quality diversified assets and fine-tuning portfolios based on market conditions, and more importantly, client’s needs, will produce happy returns.
“Dare to be honest and fear no labor.” – Robert Burns
ND&S Weekly Commentary 9.4.18 – Trade Tensions Ease
September 4, 2018
US equity markets moved higher last week as trade tensions eased with an agreement announced between US and Mexico. Talks between US and Canada remain ongoing and will continue this week as officials look to conclude a revised NAFTA agreement before year-end. On the other hand, trade relations remain frosty between US and China as President Trump was in support of another round of tariffs on an additional $200 billion in Chinese imports set to take effect this week.
Equity investors were rewarded for the week, the DJIA closed higher by 0.79% while the broader-based S&P 500 closed up 0.98%. Technology stocks were again the leading contributor for performance as the tech-heavy NASDAQ closed the week up 2.07%. International stocks also finished the week in the green with the MSCI EAFE and MSCI EM indexes up 0.28% and 0.60%, respectively. Treasury yields finished the week slightly higher with the 10yr US Treasury closing at a yield of 2.86%.
Economic data for the week was generally positive. On Wednesday, real GDP was revised higher to 4.2% in the 2nd quarter of 2018 with consumer spending serving as a catalyst for the positive adjustment. The core personal consumption expenditures (PCE) index, which measures personal spending and accounts for over 2/3 of US economic activity, increased to 2.0% year-over-year. On Friday, consumer confidence came in at 133.4, marking its highest reading since October 2000. The holiday-shortened week ahead will have economic releases on manufacturing and employment.
Second quarter earnings are nearly complete and have been very positive versus expectations. Earnings per share for the S&P 500 increased 25% when compared to a year ago. Revenues were also strong for the index, as revenues expanded 10.1%. Earnings growth has likely peaked in this expansion, but we continue to see reasonable earning growth in the quarters ahead.
“In life, as in football, you won’t go far unless you know where the goalposts are.” – Arnold H. Glasgow
ND&S Weekly Commentary (9/24/18) – Resilient
September 24, 2018
This market is resilient! U.S. stocks pushed to record highs last week despite ongoing trade tensions with China. President Trump announced a 10% tariff on $200 billion of Chinese goods while China retaliated with a 5% to 10% tariff on $60 billion of U.S. goods (will they all just grow up?). Investors focused, yet again, on the strength of the U.S. economy. Evidence of our robust economy can be found in second quarter earnings. With earnings reports now complete, second quarter earnings increased over 24.4% year-over-year with 81.4% of companies reporting positive earnings surprises. Revenues for the second quarter were up 9.4%.
For the week, the DJIA gained 2.25% while the S&P 500 finished higher by 0.86%. The volatile Nasdaq lost 0.28% after some profit-taking in technology stocks. Developed international markets finished in the black as the MSCI EAFE index moved up 2.91% for the week. Emerging markets recovered a much-needed 2.28% last week even as the U.S. dollar gained 0.3%. Small company stocks, represented by the Russell 2000, gave back some gains as it dropped 0.53% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.26%. As a result, the 10 YR US Treasury closed at a yield of 3.07% (up 8 bps from the previous week’s closing yield of 2.99%). Gold prices dropped by $10 to close at $1,196.20/oz. Oil prices advanced $0.46 last week as oil closed at $70.78/bbl … certainly not a hindrance to further economic growth
The most newsworthy economic event this week is the meeting of the Fed on Tuesday and Wednesday. It is widely anticipated that the Fed will raise interest rates 25bps to 2.25%. Commentary from the Fed will be closely watched for any hints about a possible December rate hike.
Markets are typically volatile heading into mid-term elections, and we expect this year to be no different. As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.
“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” – William Feather